Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

ENDOGENOUS CHANGEentertain theories and follow policies such that equilibrium results.But there is no reason why they should not do it with reservations,which means that a process of learning may be taking place. Hahn’sclaim that: ‘it will be a condition of the agent being in equilibriumthat he is not learning’ is therefore put into question by thisargument. Agents may fail to have a fully comprehensive theory ofthe world, but may content themselves with a less comprehensiveone that leaves out a subset of the messages from the economy andnature. 9 The benefit from this partitioning is that a coherent set ofpropositions can be put together and a policy can be defined. Butjust like economists, agents will select a line of research and pursue ituntil some new theory is ready to be used. The new theory may bemore comprehensive than the previous one or consist of analtogether different set of propositions.It is the perception of complexity, on the part of economicanalysts and economic agents alike, that this argument is based on.Any theory entertained by both groups is entertained withreservations. Such reservations, however, do not prevent them fromusing that theory. This is especially true for economic agents whoneed theories to act. What these reservations imply is that atendency is continuously at work to try new lines of research whosepossible developments and final outcome are as yet unknown.We have reached a point when Loasby’s remarks can bereconsidered to see whether they can be substantiated by thearguments put forward so far. As quoted above, Loasby questionsthe adequacy of the distinction between discontinuous andincremental change, arguing that it is an imposed distinction. Thequestion we have to ask, then, is whether this distinction breaksdown when learning is shown to be compatible with equilibrium,which is precisely the conclusion reached above. The answer is thatit does break down. When learning is compatible with equilibriumin the way that was described earlier, change is no longerdiscontinuous or incremental or, alternatively, is both discontinuousand incremental. This is the case because the change that resultsfrom the process of learning has an element of discontinuity and anelement of continuity. The element of discontinuity originates fromthe fact that the unknown outcome of the process of learning mightdisrupt the established equilibrium relations. The element ofcontinuity comes from the simple fact that a process of learning isassumed, with the result that a line of development is identified. 10This is just another way of saying that novelty and explanation areboth preserved. For this kind of change the most appropriate111